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"If you're going to panic, do it fast and beat the crowd." ~ Jesse Livermore

Saturday, January 12, 2013

Get used to more fiscal cliffs

Get used to more fiscal cliffs: " . . . After all the hype around the fiscal cliff, the resolution has contained nothing even close to a “grand bargain”. In hindsight, it was naïve to expect that the talks would generate a new framework for overarching tax reform and changes to entitlement programs that would create a more efficient U.S. economy in the longer-run, perhaps paired with steps to offset some of the pain of adjustment in the short run. It was unrealistic because that’s how the American political system does policy. Iteratively, gradually, haltingly. A grand bargain would be the equivalent of the 1983 Social Security reforms, 1986 tax reform, and the 1990 deficit-reduction deal, all in one. But notice something important: Those things happened over a seven year period, not a six week period. In other words, we should get used to this. There are fundamental changes that will happen to U.S. fiscal policy in the years ahead, both in tax policy, entitlements, and overall deficit reduction. But they will come about through a series of jaw-clenching negotiations that drive reporters and polticians alike batty. In a political system with so many distinct nodes of power, and with such complicated issues at stake, there is no other way. All this doesn’t necessarily consign the economy to years more of stagnation. There was plenty of brinksmanship, and even a couple of government shutdowns, in the 1990s, which was quite a good decade for the U.S. economy. If the fundamentals are strong, the hijinks of Washington policymakers don’t matter much. So brace yourself for a series of artificial deadlines and last-ditch negotiations and brinksmanship. And hope that the policies that come out of all that, several years down the road, involve both more sustainable public finances and a more competitive U.S. economy. . . . "